if they have an immediate liquidity need, you subtract from the asset base (i…e the denominator of your calc).

but living expenses for the upcoming year are not subtracted.

for example, if the portfolio is 5M today, and they need to make a lump sum payment for a child’s wedding today of 100k, and next year’s expenses, which increase with inflation, are 200K, and inflation is 3%, the calc would be:

(200,000)(1.03) / (5,000,000 - 100,000)

then add 3% at the end if they say they want to maintain the real value of the portfolio.

so what you have done is calculated next year’s living expenses, an divided it by today’s portfolio less any immediate liquiidity needs (since the 100,000 for the wedding cant be used over the course of the upcoming year to generate returns).